Final answer:
The question involves a business acquisition where Dosmann, Inc. purchases Lizzi Corp., allocating the payment to both tangible and intangible assets, and further agrees to a contingent consideration based on future performance. This reflects both business valuation and accounting practices.
Step-by-step explanation:
The question pertains to a business transaction where Dosmann, Inc. bought all outstanding shares of Lizzi Corp. on January 1, 2011, paying $700,000 in cash. This cash payment was allocated partly to tangible assets, such as equipment valued at $35,000, and to intangible assets like goodwill, valued at $88,000. Furthermore, an additional payment of $110,000 was agreed upon, contingent upon Lizzi Corp. achieving a certain performance benchmark by January 1, 2013.
This scenario illustrates not only the financial accounting aspects of business combinations but also introduces a contingent consideration based on future financial performance. The fair value estimation of the assets and the goodwill reflects the buyer's expectations of the future economic benefits that the acquired company will generate. The contingent payment arrangement suggests that Dosmann, Inc. has a potentially higher valuation for Lizzi Corp. if specific financial targets are met. These types of transactions are common in acquisition agreements and require careful accounting to reflect the true cost of the acquisition and potential liabilities arising from the contingent consideration.